Page 193 - DMGT519_Conflict Management and Negotiation Skills

Unit 9: Distributive Bargaining

Making or not making a First Offer Notes

Research into the affect of anchoring strongly suggests that negotiators who present a first offer
frequently enjoy a substantial negotiation advantage. In many studies sellers who make the first
offer have been found to achieve higher negotiated prices than buyers making first offers.
Making the first offer anchored the negotiation in the favour of the sellers.
Furthermore, researchers have also discovered that the likelihood of a first offer being made
powerfully associates to an increase of the negotiator’s confidence and sense of control at the
negotiation table. Those who are lacking confidence and who feel disempowered by the structure
of a negotiation or the availability of alternatives are less apt to make a first offer. There is also
a great deal of evidence that the size of the first offer impacts the outcome of a negotiation – with
higher or more aggressive first offers delivering better outcomes. First offers predict final
settlement prices more so than ensuing concessionary offers.

Naturally, there are no hard and fast rules that can be applied to every negotiation situation. It
would obviously give an advantage to a negotiator who makes a first offer when they have
insufficient information regarding the other party. They should be aware that the other party is
better informed about the issues being negotiated, and possess better market and industry data.
Sellers or buyers of property, who utilize experienced real estate agents, have access to more
and better information than buyers and sellers who act on their own behalf. The lesson is that
negotiators should prepare sufficiently to be on par or ahead of the other party in terms of their
knowledge of the issues at hand, and of market and industry trends. This allows them the
necessary confidence to propose first offers that will anchor the negotiation in their favour.

How a first offer should be constructed

Although it is apparent that first offers should be strong, negotiators should always be on guard
against becoming too aggressive. This would push them outside the range of what would be
acceptable to the other party. The fear that many negotiators experience in this scenario is that
aggressive first offers may possibly scare or annoy the other party to the extent that they break
off the negotiation is often highly exaggerated. It causes most negotiators to err on the side of
being overly-cautious and the resulting consequence that they fail to form the best possible
agreement.
Aggressive first offers work is advantageous to negotiators for the following reasons:
1. Such offers assist sellers to attain higher final agreements;
2. Higher list prices lead to higher final selling prices, as it causes buyers to concentrate on
the positive features of a purchase; and
3. Aggressive first offers generate leeway for negotiators to give concessions without
exceeding their BATNAs.
First offers that are timid generally place heavy limitations on the ability of a negotiator to
agree to and extract concessions/counter-concessions, or not to go beyond their real base (walk
away value). On the other hand, aggressive first offers allow the other party the scope to negotiate
concessions. The ensuing result is that it increases that party’s sense of achievement and satisfaction,
and consequently the possibility of a mutually beneficial outcome.
First offers provide early insight into the contracting zone (the range between each party’s real
bases), and the range of possible agreements. However, such offers could, if they are absurdly
aggressive, create the perception that a mutually beneficial agreement is impossible, and thus
result in a party invoking its BATNA (Next Best Option).

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